The US on Monday cracked down on companies in China and other countries that use subsidiaries or other foreign affiliates to circumvent export curbs on chipmaking equipment and other goods and technology.
The Commerce Department issued a new rule expanding its restricted export list, known as the Entity List, to automatically include subsidiaries owned 50 percent or more by a company on the list, according to posting in the US Federal Register. The action greatly increases the number of companies that require licenses to receive American goods and services.
The rule is likely to disrupt supply chains. It also makes it more difficult for companies to determine whether exports to a customer or supplier are restricted, and places more of a burden on the exporter to figure out ownership before moving forward. According to the rule, certain transactions may be allowed during a 60 day grace period.
China’s Commerce Ministry strongly criticized the rule.
“This move by the US is extremely egregious in nature,” the ministry said in a statement. “It seriously infringes upon the legitimate rights and interests of the affected enterprises, severely disrupts international economic and trade order and gravely undermines the security and stability of global industrial and supply chains.”
The Commerce Department said the rule “closes a significant loophole.”
The timing of the rule’s release is somewhat surprising, given that the US and China are in the midst of trade talks. The action strengthens export controls on China, a contrast to Washington’s recent loosening of controls on AI chips to China like Nvidia’s H20.
If a company is at least 50 percent owned by an entity on the list, licenses will be required for US exporters to ship goods or technology to the subsidiary, as is the case with listed entities, with many licenses likely to be denied.
